# Thread: Find the Annual Rate

1. ## Find the Annual Rate

Tracy is thinking about buying 100 shares of a stock selling for $15 per share. The stock pays no dividends. Her broker says that the stock will be worth$20 per share in 2 years. What is the annual rate of return on this investment?

2. Originally Posted by magentarita
Tracy is thinking about buying 100 shares of a stock selling for $15 per share. The stock pays no dividends. Her broker says that the stock will be worth$20 per share in 2 years. What is the annual rate of return on this investment?
Assume that you instead invest the money ($15000) at an annual rate r, then after 2 years this must be worth$20000 to be an equivalent investment, and r is the annual rate of return on the investment.

RonL

3. ## Can you..

Can you break it down another way?

4. Originally Posted by Air
She buy's $100$ shares at $$15$ so in total she pays: $100 \times$$ $15 =$ $$1500$ In $2$ years, the value is$ $20$ so in total, her share value is:

$100 \times$ $$20 =$$ $2000$

So, over two years, she has had a profit as the stocks are worth more than she paid so she has earnt:

$$2000 -$$ $1500 =$ $$500$ So, per annum ( $1$ year) this would be:$ $500 \div 2 = ...$
An annual interest rate will result in compounding annualy so you will not earn the same interest in each year.

RonL

5. ## Thanks...

Thank you so much. I got it now.